Inflation as measured by the benchmark IPCA index
decelerated to 0.01 percent, the slowest in four years, from
0.40 percent in June, the national statistics agency said today
in Rio de Janeiro. That was below all estimates from 46
economists surveyed by Bloomberg, whose median forecast was 0.10
percent. Annual inflation slowed to 6.50 percent, versus a
median estimate of 6.60 percent.

While consumer price increases slowed more than expected,
inflation at the top of the target range is hurting consumers’
purchasing power less than two months before presidential
elections. President Dilma Rousseff has worked to contain
inflation by capping government-regulated prices, while the
central bank undertook the longest rate-raising cycle in the
world of its benchmark Selic rate.

“The overall picture continues to be one where you see
price pressures,” Carlos Kawall, chief economist at Banco J.
Safra, said by phone from Sao Paulo. “All the news is that auto
sales are down, electronic goods sales, furniture, they’re all
down, yet prices are still resilient.”

Swap rates on the contract due January 2017, the most
traded in Sao Paulo today, rose one basis point, or 0.01
percentage point, to 11.81 percent at 10:46 a.m. local time. The
real declined 0.5 percent to 2.3061 per U.S. dollar.

Personal Expenses

Transport prices in July fell 0.98 percent, following a
0.37 percent increase in June, the statistics agency said in
today’s report. That included a 26.86 percent decline in airfare
due to the end of the monthlong World Cup soccer tournament,
which finished July 13. Food prices dropped 0.15 percent.
Personal expenses increased 0.12 percent, including a 7.65 drop
in hotel prices. Personal expenses rose 1.57 percent in June.

The greater-than-expected drop in hotel prices was due to
the end of the World Cup, according to Flavio Serrano, senior
economist at Banco Espirito Santo de Investimento. The other
surprise that drove down inflation was a 2.91 percent drop in
phone rates, he said.

Regulated prices including phone and electricity rates rose
4.63 percent in the 12 months through July versus 3.95 percent
in June. The price of services increased 8.44 percent in the
same period.

Second Round

An Ibope poll published yesterday showed that Rousseff’s
advantage over runner-up Aecio Neves in a possible Oct. 26
second-round vote narrowed to six percentage points from eight
in the previous survey. The poll had a margin of error of two
percentage points.

The central bank on July 16 held the key interest rate at
11 percent for the second straight meeting after raising it 3.75
percentage points in the 12 months through April. Policy makers
target inflation of 4.5 percent plus or minus two percentage
points.

Today’s data “is good news for the central bank,” Enestor
Dos Santos, principal economist at Banco Bilbao Vizcaya
Argentaria, said by phone. “It will increase the possibility of
the Selic staying at this level at the beginning of next year
rather than being increased. We still have to see the upcoming
data to confirm this trend.”

Brazil’s inflation is showing a more favorable trend, and
it’s clear policy makers aren’t contemplating a reduction in the
Selic, Carlos Hamilton, the central bank’s economic policy
director, said yesterday in Rio de Janeiro. He also said fast
inflation reduces confidence.

Consumer confidence as measured by the Getulio Vargas
Foundation posted two successive increases in June and July,
rebounding from its lowest level in more than five years.

Inflation Outlook

Analysts surveyed by the central bank Aug. 1 cut their 2014
inflation outlook for the third straight week, to 6.39 percent.
They reduced their economic growth forecast for the 10th
straight week, to 0.86 percent. The economy expanded 2.5 percent
in 2013.

Inflation will end this year within the target range as the
economy slows from last year and the effects of recent monetary
tightening have not been fully felt yet, central bank President
Alexandre Tombini said at a Senate hearing Aug. 5. Brazil is not
condemned to inflation of 6 percent, he said.

“Despite the benign July monthly print, inflationary
pressures are still quite generalized and disseminated
throughout the economy,” Alberto Ramos, chief Latin America
economist at Goldman Sachs Group Inc., wrote in a note.

(Earlier versions of this story corrected to say that
median estimate from economists for July inflation was 0.1
percent, and food prices fell 0.15 percent.)